Payment Banks | Introduction and explanation

Payment Banks

Payments banks are a new model of banks conceptualised by the Reserve Bank of India (RBI). These banks can accept a restricted deposit which is currently limited to INR 1 lakh per customer and may be increased further. These banks cannot issue loans and credit cards.

Need for Payment Banks erupted because India has around 94 crore mobile subscribers which is approx. 75% of the population of 125 crore but if we see the number of bank accounts this figure comes down to 60 crore that is around 50% of the population.

Most of the unbanked people lives in the rural area and are poor people or small businessman. So from financial inclusion point of view, this model (PPI) seems to be sound concept.

Payment bank guidelines

RBI has spelled out clear guidelines for Payment Banks. While it is expected that these guidelines would evolve over the coming years, the following is what has been laid out as the initial set of guidelines.

• Minimum entry capital for Payment banks is fixed at Rs 100 Crores.
• Payment banks can accept demand deposits. The restriction therein is that the maximum balance per customer can only be Rs 100,000/-.
• Payment banks would primarily provide remittance and payment services. The boundary condition here is that the total credits into an account should not exceed Rs 100,000/-.
• Payment banks must be a banking correspondent of a commercial bank wherein they can offer services like marketing of bank’s loan products etc.
• Commercial banks can also leverage this model by launching a payments bank subsidiary.
• Payment banks can be “Internet only“. It is a very interesting proposition and it remains to be seen if this is the path that India’s first digital bank would take.

Payment Banks Structure

1. RBI in its draft guidelines has stipulated the minimum equity capital of Rs.100 crore and minimum capital adequacy of 15%.
2. The leverage ratio shall not be less than 5% i.e. liabilities should not exceeds 20 times of its net worth.
3. Promoters holding shall not be less than 40% for the first five years and 30% for the 10 years and 26% for the 12 years from the commencement of the business of the payment banks.
4. Commercial Banks could have Payment Banks as their subsidiary.

So the major difference between the payment banks, PPI and Commercial banks are:

 

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